Clients in the News: ICW Group
Fraud Triage Programs: Strategic Decisions for Better Detection
February 2, 2010
Claims Magazine, Kirk Madsen Byliner
Triage plays a critical role in hospital emergency rooms. Ensuring that patients with the most urgent needs are treated first has proven to dramatically improve the rate of lives saved. This same concept holds true for insurance. Using triage to review insurance claims can improve the rate of fraud detection while generating considerable savings for both carriers and their policyholders.
Insurance companies want to pay legitimate claims while at the same time avoid paying suspicious ones. A comprehensive triage program supports this goal by quickly identifying suspicious claims and mapping out a distinct plan for investigation. By deterring the perpetrators who run what law enforcement officials calculate is a multi-billion-dollar "industry," insurers can protect policyholder assets, which benefits our entire industry. With an established triage program in place, a carrier’s special investigations unit (SIU) can increase referrals by as much as 25 percent, leading to an even larger increase in appropriate claim denial rates. This translates into millions of dollars each year in reduced payouts and indemnity reserves — all while greatly increasing the number of criminal convictions.
We All Pay
The Federal Bureau of Investigation estimates that the total cost of insurance fraud (excluding health care) exceeds $40 billion per year. That means insurance fraud costs the average U.S. family between $400 and $700 annually in the form of increased premiums.
In California alone, the Department of Insurance (CDOI) identified the potential loss from fraud in the 2007/2008 fiscal year at $1.2 billion, according to the 2008 Annual Report of the Insurance Commissioner. This included fraudulent claims for property, life, and casualty ($674.2 million); workers’ compensation ($292.4 million); automobile ($176.3 million); and disability and health care ($11.2 million). Thus, it is not difficult to see how even a small improvement in fraud detection can lead to a considerable savings for the industry. Claim triage moves us in that direction.
While my experience encompasses all segments of the insurance business, I spend the most time fighting workers’ compensation fraud. Workers’ compensation fraud is distinguished from other lines of insurance in one significant way: It involves the claimant’s employer, and the impact fraud can have on a business is significant.
Workers’ Comp Fraud
Nearly 10 years ago, the National Insurance Crime Bureau (NICB) singled out workers’ compensation insurance fraud as the fastest growing insurance scam in the nation, costing the industry in excess of $5 billion per year. No doubt this figure has continued to rise for what many people still consider to be a victimless crime.
During 2007/2008 fiscal year, the CDOI identified and reported 4,973 suspected fraudulent claims; assigned 515 new cases; made 375 arrests; and referred 432 submissions to prosecuting authorities. During that same year, California district attorneys also prosecuted 1,063 cases that resulted in 527 convictions. The courts ordered $23.6 million in restitution in connection with these convictions, yet less than half of that amount was collected. Additionally, the CDOI believes that these figures only represent a fraction of the actual fraud, since many fraudulent activities are never identified or investigated.
Value of Collaboration
Building a successful fraud detection program requires a commitment across the entire carrier organization. At the same time, it is essential to embrace the critical role that policyholders and outside vendors play, particularly in workers’ compensation. With new workers’ compensation clients, I recommend an on-site visit with a state fraud investigator (if available) to meet with company managers to discuss their overall workers’ compensation claim history. Explain how you conduct investigations, and how they can participate in the process.
The goal is to partner with policyholders on their anti-fraud efforts, teaching them effective techniques for employer-level investigations. For example, encourage them not to simply pass along a claim to you, but to actually investigate it. Advise them on the types of questions to ask employees who are filing claims, and explain how this can alert you to a potentially fraudulent claim. After all, the employer will likely know more about the worker and the incident than anyone else.
The ultimate goal is to help your policyholders understand how anti-fraud efforts can create premium savings. If a workers’ compensation claim is reduced or eliminated, then this helps keep the policyholders’ experience modification factor — or "X-Mod" — from increasing. This, in turn, favorably impacts the cost of their premiums. If a case also ends up with a criminal conviction, then it sends a dynamic message to the workforce that fraud will not be tolerated, and helps deter further fraud from occurring within the organization. By working together to fight fraud, both carrier and policyholder benefit greatly.
Triage Demands Expertise
A central component of a successful claim triage program is the ability to quickly and correctly identify a suspicious claim. Predictive analytics can be very insightful and can improve fraud detection in workers’ compensation because certain characteristics of claims are predictive of potential fraud. When these traits are spotted, they merit follow-up by the triage unit, including possible referral to the carrier’s SIU. Characteristics of a fraudulent claim often include one or more of the following:
- An injury reported on late Friday or early Monday.
- The injury was not witnessed.
- Involves a new hire or spotty employment history.
- Injury near layoff, termination, or disciplinary action.
- A disgruntled employee.
- The mechanics of the injury do not match the job duties.
- The employee has no health insurance.
- There are pre-existing conditions — prior similar injury or injuries to the same body part(s).
- The person was working while collecting disability payments.
- The doctor’s note or medical forms appear to be altered.
To help drive a triage program, I recommend a process that I refer to as "Talk Soup." This is a weekly meeting that focuses on sensitive claims and includes investigators, claim examiners, legal counsel, underwriters, and risk managers. This cross-disciplined group collectively decides whether to accept or deny a claim, and they develop appropriate action plans to resolve the claim.
A triage program is most successful when the carrier has invested in a comprehensive training program. Claim examiners who excel throughout the extensive training, and who demonstrate a strong commitment to your overall triage program, should be the only ones chosen.
Bring in outside resources to help claim representatives learn how to detect fraud. For example, using law enforcement professionals to teach techniques about how to ask the claimant the right questions has proven to be highly effective. Great success can also come from bringing in experts who specialize in statement-taking methods and can train people in phrasing questions, spotting inconsistencies, and framing probing follow-up questions. Invite a district attorney or a fraud investigator from the state fraud bureau or an investigation unit to demonstrate the types of interview methods employed to effectively ferret out fraud. If a particular case calls for the services of an outside private investigator, then see that they, too, are trained in the proper techniques for conducting in-person interviews, site visits, and activity checks.
Swift Response Improves Results
In many states, carriers are required to either accept or deny a claim within a specified amount of time. In California, for example, a carrier has 90 days to accept or deny a claim. Therefore, it is imperative to begin an investigation — and surveillance, if needed — as soon as possible. Once a claim is flagged as suspicious, it can be funneled to the triage unit for follow-up.
Armed with proper training, the triage unit examiner can quickly secure extensive claim details from the applicant, employer, doctor, and witnesses (if appropriate). If inconsistencies are found, then the claim should be referred to the SIU immediately for further investigation.
If after the investigation the SIU concludes that a claim is fraudulent, then the unit can recommend a range of action plans, including one or more of the following:
- Implement additional investigational strategies.
- Negotiate a one-time nominal settlement. This reduces time spent and indemnity reserve requirements, saving both the carrier and the policyholder money — and it’s a win.
- Deny the claim with no payment — a big win.
- Submit a fraud referral form to the Department of Insurance Fraud Division and local district attorney.
To implement properly, claim triage requires an investment of time and resources along with a focused commitment across a carrier’s many departments. It needs to be a team effort by which carrier, policyholder, and outside vendor partner (if appropriate) work in concert with one another toward a common goal. In addition, it necessitates personnel with very specific fraud training and experience.
When done correctly, triage has proven to pay long-term dividends in terms of higher denial rates, reduced indemnity reserves, and premium savings for policyholders. In the end, everybody wins — except the perpetrators, of course.